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29 Mar, 2020

47 Min Read


GS-II : Government policies and interventions Government policies and interventions


Part of: GS Prelims and GS-II- Governance

Newly instituted PM-CARES Fund.


  • In India, the spread of coronavirus has been increasing and is posing serious challenges for the health and economic security of millions of people.
  • There have been calls for citizen donations to support the government in the wake of this emergency with people from all walks of life expressing their desire to donate to India’s war against COVID-19.


  • Catering to the need for having a dedicated national fund with the primary objective of dealing with any kind of emergency or distress situation, and to provide relief to the affected, a new fund has been set up.
  • The fund will be a public charitable trust under the name of the Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund).
  • Prime Minister is the Chairman of this trust and its Members include Defence Minister, Home Minister and Finance Minister.
  • The new fund will not only cater to the immediate crisis posed by COVID-19 but also to similar distressing situations if they occur in the future.
  • PM-Cares Fund accepts micro-donations too.

Contribution to PM - CARES Fund will Qualify as CSR Expenditure

    • The Ministry of Corporate Affairs has clarified that contributions by companies towards the PM-CARES Fund will count toward mandatory Corporate Social Responsibility (CSR) expenditure.
    • Under the Companies Act, 2013, companies with a minimum net worth of Rs 500 crore or turnover of Rs 1,000 crore, or net profit of Rs 5 crore are required to spend at least 2% of their average profit for the previous three years on CSR activities every year.
    • The term "Corporate Social Responsibility" in general can be referred to as a corporate initiative to assess and take responsibility for the company's effects on the environment and impact on social welfare.
  • Existing Similar Fund: Prime Minister’s National Relief Fund (PMNRF)
    • This fund was instituted in 1948 by then Prime Minister Jawaharlal Nehru, to assist displaced persons from Pakistan. The fund is currently used primarily to tackle natural calamities like floods, cyclones and earthquakes. The fund is also used to help with medical treatment like kidney transplantation, cancer treatment and acid attack.
    • The fund consists entirely of public contributions and does not get any budgetary support. It accepts voluntary contributions from Individuals, Organizations, Trusts, Companies and Institutions etc.
    • The corpus of the fund is also invested in various forms with scheduled commercial banks and other agencies. Disbursements are made with the approval of the Prime Minister.
    • The fund is recognized as a Trust under the Income Tax Act and the same is managed by the Prime Minister or multiple delegates for national causes.
    • Contributions towards PMNRF are notified for 100% deduction from taxable income under section 80(G) of the Income Tax Act, 1961.

Source: TH

Global Antimicrobial Resistance Research and Development Hub – Antibiotic resistance


Global Antimicrobial Resistance Research and Development Hub – Antibiotic resistance

Part of: GS Prelims and GS-III- Health (S&T)

Antibiotic resistance is not a problem that can be solved by any one country or even one region. Since, we live in a connected world, where people, animals and food travel and microbes travel with them, a global action is essential to make progress in the long run. Increasing public awareness and understanding is therefore the most crucial pillar towards tackling antimicrobial resistance. AMR is an increasingly serious threat to the global public health that requires action across all government sectors and societies.

What is Antimicrobial resistance?

Antimicrobial resistance (AMR or AR) is the ability of a microbe to resist the effects of medication that once could successfully treat the microbe. The term antibiotic resistance is a subset of AMR, as it applies only to bacteria becoming resistant to antibiotics. Antibiotics are medicines used to prevent and treat bacterial infections. Antibiotic resistance occurs when bacteria change in response to the use of these medicines.

Bacteria, not humans or animals, become antibiotic-resistant. These bacteria may infect humans and animals, and the infections they cause are harder to treat than those caused by non-resistant bacteria. Antibiotic resistance occurs naturally, but misuse of antibiotics in humans and animals is accelerating the process. A growing number of infections – such as pneumonia, tuberculosis, gonorrhoea, and salmonellosis – are becoming harder to treat as the antibiotics used to treat them become less effective. It leads to higher medical costs, prolonged hospital stays, and increased mortality.

PT PICKS: Antimicrobial resistance (AMR) is the ability of a microorganism (like bacteria, viruses, and some parasites) to stop an antimicrobial (such as antibiotics, antivirals and antimalarials) from working against it. As a result, standard treatments become ineffective, infections persist and may spread to others.

When an organism is resistant to more than one drug, it is said to be multidrug-resistant.

Key findings:

  1. India is one of the top users of antibiotics.
  2. The private sector clocked high levels of antibiotic prescription rates (412 per 1,000 persons per year).
  3. The highest rate was seen among children aged 0–4 years (636 per 1,000 persons) and the lowest in the age group 10–19 years (280 per 1,000 persons).
  4. Per-capita antibiotic consumption in the retail sector has increased by around 22% in five years from 2012 to 2016.

Ways by which individuals become antibiotic resistant (2019 PT)

  • Inappropriate use of antibiotics such as popping pills for mild ailments like common cold.
  • Rampant use of antibiotics in livestock and poultry animals. Antibiotics used in animals to treat infections and for growth promotion are often passed on to humans who consume their meat.
  • Improper disposal of residual antibiotics that eventually enter the food chain.
  • Prolonged illness
  • Poor diagnosis
  • Poor health and hygiene management in Hospitals (Fluid exchange)
  • Globalisation

Doctors’ take on antibiotics

  • Doctors believe that the inappropriate and sometimes rampant use of antibiotics has transformed the healthy human intestinal gut flora into a reservoir of antibiotic resistance organisms.
  • At present organisms are resistant to low end antibiotics but if the misuse persists, these may become resistant to high end antibiotics as well.
  • There are as many bacteria in a human body as the number of cells. They perform a host of functions to keep the body running for example, processing the food we eat and modulating the immune system. The antibiotic resistant bacteria aren’t healthy so they cannot perform these functions well.
  • The presence of antibiotic resistance in healthy individuals is a cause for concern because it signals that it will get more difficult to treat infections in the future.

India’s action plan for AMR

  • A national policy for containment of AMR was introduced in 2011. The policy aims to understand emergence, spread and factors influencing AMR.
  • To set up an antimicrobial program to rationalize use of antimicrobials and to encourage the innovation of newer and effective antimicrobials.
  • In addition, some major action points identified in the national policy are:
    • Establishing an AMR surveillance system.
    • To strengthen infection, prevention and control measures.
    • Educate, train and motivate all stakeholders in the rational use of antimicrobials.
    • Providing sanitation, clean water and good governance.
    • Increasing public health expenditure and better regulating the private health sector.

WHO’s take on antibiotic resistance

  • As per the World Health Organization (WHO), antibiotic resistance is rising to dangerously high levels in all parts of the world.
  • The alarming rate at which bacteria are becoming resistant has led the World Health Organization (WHO) to identify AMR as one of the top ten threats to global health.
  • The world body recommends that countries must prioritize their national action plans to scale up financing and capacity building efforts, put in place a stronger regulatory systems and support awareness programmes for responsible and prudent use of antimicrobials by professionals in humans, animals and plants health.
  • In addition, countries must invest in ambitious research and development technologies to combat AMR.
  • The WHO also suggests a number of steps that can be taken at various levels to reduce the impact and also limit the spread of this resistance.

At individual level

  • For individuals, the most important step towards preventing and controlling the spread of this antibiotic resistance is to use antibiotics only when prescribed by a certified health professional. Also, never sharing with anyone used leftover antibiotic.
  • Preparing food hygienically and avoiding close contact with sick people.
  • Practising safer sex and keeping vaccinations up to date.
  • Following the WHO’s five keys to safer food i.e. to keep clean, separate raw and cooked, cook thoroughly, keep food at safe temperatures, use safe water and materials and choose foods that have been produced without the use of antibiotics for growth promotion or disease prevention in healthy animals.

For Policymakers

  • Policymakers must ensure that a robust national action plan is in place to tackle antibiotic resistance.
  • Surveillance of antibiotic-resistant infections must be improved.
  • Policies, programmes and implementation of infection prevention and control measures must be strengthened.
  • It is required to regulate and promote the appropriate use of quality medicines.
  • Information must also be made available on the impact of antibiotic resistance.

For Health Professionals

  • Health professionals need to play a major role in preventing and controlling the spread of antibiotic resistance.
  • The first and foremost thing that must be done is to ensure that their hands, instruments and environment are clean.
  • They should only prescribe and dispense antibiotics when they are needed.
  • They must immediately report antibiotic resistant infections to surveillance teams.

For different sectors

  • Sectors like healthcare and agriculture must also act to prevent and control the spread of antibiotic resistance.
  • The healthcare industry can invest in research and development of new antibiotics, vaccines, diagnostics and other tools.
  • The agricultural sector must adhere to the guidelines such as giving antibiotics to animals only under veterinary supervision.
  • Antibiotics should not be used for growth promotion or to prevent diseases in healthy animals.
  • Animals must be vaccinated to reduce the need for antibiotics and use alternatives to antibiotics when available.
  • The agriculture sector should also promote and apply good practices at all steps of production and processing of food from animals and plants sources.
  • In addition, they must also improve biosecurity on farms and prevent infections through improved hygiene and animal welfare.


1. In 2015, WHO launched the global antimicrobial surveillance system (GLASS) to work closely with WHO collaborating centres and existing antimicrobial resistance surveillance networks.

    • As members of GLASS, countries are encouraged to implement the surveillance standards and indicators gradually based on their national priorities and available resources.

2. Recently, the United Nations (UN) has begun considering the threat of antimicrobial resistance (AMR) to be at par with diseases like ebola, HIV.

3. The WHO has launched a global campaign that urges countries to adopt its new online tool aimed at guiding policy-makers and health workers to use antibiotics safely and more effectively.


The tool, known as ‘AWaRe’, classifies antibiotics into three groups:

Access — antibiotics used to treat the most common and serious infections

Watch — antibiotics available at all times in the healthcare system

Reserve — antibiotics to be used sparingly or preserved and used only as a last resort

4. India has been called the epicenter of the global drug resistance crisis. Chickens in numerous poultry farm are being given Colistin, to protect them against diseases or to make them gain weight faster. Doctors call Colistin the ‘last hope’ antibiotic.

The World Health Organisation has called for the use of such antibiotics to be restricted to animals. These should be banned as growth promoters.

MCR-1 is one such gene discovered recently. It could be transferred within and between species of bacteria. This means that microbes did not have to develop resistance themselves, they could become resistant just by acquiring the MCR-1 gene. The resistance could be passed to bugs which are already multi-drug resistant. This could lead to untreatable infections. Another such gene is New Delhi Metallo-beta-lactamase 1 (NDM-1), which makes bugs resistant to carbapenem antibiotics.

5. 2017 National Action Plan on Antimicrobial Resistance

  1. For the first time, the 2017 National Action Plan on Antimicrobial Resistance talks about limiting antibiotics in effluent being dumped by drug makers into the environment
  2. This is because when these drugs taint soil and water, the scores of microbes that live there grow drug-resistant
  3. Until now, India’s fight against antibiotic-resistance was focussed on getting people to cut down on unnecessary antibiotic consumption

Why is resistance among microbes a problem?

  1. The answer lies in the intimacy shared between environmental bacteria and human pathogens
  2. A pathogen, say Klebsiella pneumoniae (K. pneumoniae), that causes pneumonia, can take two routes to antibiotic resistance
  3. The first is for its own genes to mutate spontaneously to help fight the drug
  4. The second route, a shortcut known as horizontal gene transfer, is for the bug to borrow resistance genes from its neighbours
  5. Scientists believe that many human pathogens today picked up their resistance genes from the environment through this shortcut

Phenomenon of anti-microbial resistance not new

  1. Phylogenetic studies suggest that the earliest antibiotic-resistance genes in nature are millions of years old
  2. But when humans started manufacturing antibiotics in the 1950s, a dramatic shift occurred
  3. Large doses of these drugs seeped into the environment through poultry and human excreta, and waste water from drug makers and hospitals
  4. This led to an explosion of resistance genes in soil and water microbes

6. European project ANSWER

It stands for ‘Antibiotics and mobile resistance elements in wastewater reuse applications: risks and innovative solutions’. This project studies technologies to remove antibiotic-resistance germs from wastewater along with other research.

6. India’s Red line campaign: (launched in Feb 2016) is finding recognition, and could be adopted globally. It should be considered as starting point of restriction over use of antibiotics. Aim: To decrease the use of Red line antibiotics without prescription, create awareness of danger of taking antibiotics.

7. Recently, India has joined the Global Antimicrobial Resistance (AMR) Research and Development (R&D) Hub as a new member.

  • Working with AMR(R&D) Hub would help India to expand existing capabilities, resources and collectively focus on new R&D intervention to address drug-resistant infections present in the country.
  • Global Antimicrobial Resistance (AMR) Research and Development (R&D) Hub is a collaboration of 16 countries, the European Commission, two philanthropic foundations and four international organizations (as observers).
  • It was launched in 2018 during the 71st session of the World Health Assembly, following a call from G20 Leaders in 2017.
  • It is supported through a Secretariat, established in Berlin, Germany.
  • It aims to further improve the coordination of international efforts and initiatives to tackle Antimicrobial Resistance while further increasing investments into R&D for AMR.
  • The work of the Global AMR R&D Hub will be aligned to the priorities set by
    • World Health Organization (WHO)
    • Food and Agriculture Organization of the United Nations (FAO)
    • World Organisation for Animal Health (OIE).
  • It enforces the One Health Approach by including environmental aspects and veterinary medicine against antimicrobial resistance.
  • It integrates human and animal health, worldwide food safety and environmental factors.

yesJai Hind Jai Bharat

Source: TH/Aspire notes/WHO

Can drugs for Ebola be used to treat COVID-19?


Can drugs for Ebola be used to treat COVID-19?

Part of: GS Prelims and GS-III- S&T

Medical research towards the development of drugs and vaccines against the coronavirus infection – COVID 19.


  • The virus, SARS-CoV-2, according to the World Health Organization (WHO), has caused the world’s largest pandemic. Over six lakh are infected and nearly 29,000 dead globally.
  • In India, the number of cases is growing despite the unprecedented measures put in place by the Central and State governments.


Medical strategy:

  • Given the long gestation period in the development of a vaccine and WHO observations that it would take over 18 months to be ready for use, “vaccination” as an immediate solution has been ruled out.
  • 15% of COVID-19 needs hospitalized care and of these 5% need ICU care. Now with time running out rapidly for the entire world, re-purposed drugs are being aimed at to contain the problem, reducing hospital load, freeing critical hospital beds and allowing people to swiftly return to normal work.
  • WHO and other health agencies are re-looking at the efficacy of known therapies and drugs to treat COVID-19. They are considering re-purposed drugs.
  • Recently, India has approved the use of the anti-malarial drug, hydroxychloroquine, as a preventive medication for people at high risk, such as health workers and immediate contacts of a person who has tested positive for COVID-19.

WHO-led Solidarity trials:

  • WHO Director-General, recently announced the launch of ‘Solidarity’, a giant multinational trial for testing therapies that researchers have suggested may be effective against COVID-19.
  • This coordinated push would help generate robust, high-quality scientific evidence from across the world in a short frame of time.
  • India too has joined the study after staying away due to its small sample size.

Potential drugs:

  • WHO is considering some of the most promising therapies including the following drugs:
    • A combination of two HIV drugs, lopinavir and ritonavir.
      • The combination drug, ritonavir/lopinavir, was introduced two decades ago to treat HIV infections.
      • Doctors in Wuhan, China have used this combination.
      • Although the drug is generally safe it may interact with drugs usually given to severely ill patients, and doctors have warned it could cause significant liver damage.
    • Anti-malaria medications, chloroquine and hydroxychloroquine.
      • Hydroxychloroquine is being looked at in India and the ICMR has said that it is currently studying the drug action in the Indian population with respect to COVID-19.
      • Its usage in some patients has shown a significantly reduced viral load in nasal swabs.
      • Hydroxychloroquine, in particular, is known to have a variety of side-effects, and can in some cases harm the heart.
    • An experimental antiviral compound called remdesivir.
      • This drug was developed to treat Ebola and related viruses.
      • It works by shutting down the viral replication.
      • Studies have pointed out that the drug shows that it can be used in high doses without causing toxicities.
  • Another combination under testing is interferon-beta, which WHO has cautioned might be risky.
  • Agencies are also looking at unapproved drugs that have performed well in animal studies with the other two deadly coronaviruses, which cause Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS). Given the fact that the novel coronavirus hails from a family on which extensive research work has already been done worldwide after SARS and MERS is a significant advantage.

yesJai Hind Jai Bharat

Source: TH

Kerala sought a relaxation of FRBM rules

GS-III : Economic Issues FRBM act

Kerala sought a relaxation of FRBM rules

Part of: GS Prelims and GS-III- Economics

Kerala is seeking relaxation from the provisions of the Fiscal Responsibility and Budget Management (FRBM) Act.

Kerala Economic package:

  • Kerala had announced an economic package of 20,000 crore rupees to mitigate the impact on livelihoods and overall economic activity from the steps taken to battle the COVID-19 pandemic.
  • To help fund the emergency relief package, Kerala proposes to borrow as much as 12,500 crore rupees from the market.


Fiscal Responsibility and Budget Management (FRBM) Act:

  • The FRBM Act was enacted in August 2003.
  • The FRBM Act is aimed at making the Central government responsible for ensuring inter-generational equity in fiscal management and long-term macro-economic stability.
  • The Act envisages the setting of limits on the Central government’s debt and deficits as well as mandating greater transparency in fiscal operations of the Central government and the conduct of fiscal policy in a medium-term framework.
    • Every Budget of the Union government includes a Medium-Term Fiscal Policy Statement that specifies the annual revenue and fiscal deficit goals over a three-year horizon.
    • The act envisages a longer-term glide path to achieve the key objective of reducing the fiscal deficit to 3% of GDP within a specified time frame. Currently, the government has set a deadline of March 2023 for ensuring a fiscal deficit target of 3.1%.
  • To ensure that the States too are financially prudent, the 12th Finance Commission’s recommendations in 2004 linked debt relief to States with their enactment of similar FRBM acts.
    • The States have since enacted their own respective Financial Responsibility Legislation, which sets the same 3% of Gross State Domestic Product (GSDP) cap on their annual budget deficits.

Kerala seeking flexibility under the FRBM:

  • Kerala’s current fiscal position means that it can borrow about? 25,000 crores during the financial year 2020-21.
  • Given that Kerala proposes to raise? 12,500 crore through borrowings in April 2020 itself, it could be severely constrained in its borrowing and spending ability over the remaining 11 months of the financial year, due to the stringent borrowing cap under the fiscal responsibility laws.
  • This could affect the State’s socio-economic programs as well as the post-pandemic recovery apart from undermining the state’s continued mitigation efforts against COVID-19.
  • Kerala has urged the Centre to provide Kerala with flexibility under the Fiscal Responsibility and Budget Management (FRBM) Act.

Relaxation under the FRBM act:

  • The FRBM act does contain provisions for relaxation from FRBM clauses. This is commonly referred to as an ‘escape clause’.
  • Under Section 4(2) of the Act, the Centre can exceed the annual fiscal deficit target citing grounds that include:
    • National security,
    • War,
    • National calamity,
    • Collapse of agriculture,
    • Structural reforms and
    • A decline in real output growth of a quarter by at least three percentage points below the average of the previous four quarters.

Past precedents of relaxing FRBM norms:

  • There have been several instances of the FRBM goals being reset.
    • Recently, the Budget for 2020-21 had cited the recent reductions in corporate tax as structural reforms, triggering the escape clause.
      • This enabled the government to recalibrate the fiscal deficit target for 2019-20 to 3.8%, from the budgeted 3.3%. It also changed the deficit target goal for 2020-21 from 3% to 3.5%.
    • The most significant FRBM deviation happened in 2008-09, in the wake of the global financial crisis, with the Centre resorting to a fiscal stimulus.
      • Tax relief was provided to boost demand
      • Public expenditure was increased to create employment and public assets, to counter the fallout of the global slowdown.
      • This led to the fiscal deficit climbing to 6.2%, from a budgeted goal of 2.7%.
      • Simultaneously, the deficit goals for the States too were relaxed.

Arguments in favor of suspending Fiscal targets:

  • The following two aspects could be used for suspending both the Centre’s and States’ fiscal deficit targets.
    • Given the extraordinary circumstances, COVID-19 pandemic could be considered as a national calamity.
    • The ongoing pandemic in conjunction with the ongoing lockdown will cause a severe contraction in economic output.
  • This would allow both the Union government and States including Kerala to undertake the much-needed increases in expenditure to meet the extraordinary circumstances.
  • Given the past precedents and the unprecedented nature of the pandemic and its devastating impact on the global economy, another significant deviation from the FRBM norms is very likely in the current and next fiscal years.

NK Singh FRBM review committee

The FRBM Review Committee headed by former Revenue Secretary, NK Singh was appointed by the government to review the implementation of FRBM. In its report submitted in January 2017, titled, ‘The Committee in its Responsible Growth: A Debt and Fiscal Framework for 21st Century India’, the Committee suggested that a rule based fiscal policy by limiting government debt, fiscal deficit and revenue deficits to certain targets is good for fiscal consolidation in India.

Why a rethinking on FRBM was needed?

After nearly twelve years into running of the FRBM (2003) legislation, there was a big debate on whether India has to continue with a fiscal deficit target or not. One group argued that in a developing country, government has to make lot of expenditure and an upper ceiling will reduce government involvement. The opposite group countered that loosening of the target will led to excess expenditure, government debt, inflation and several other macroeconomic problems besides creating intergenerational inequality. The responsibility of the NK Singh Committee thus was to suggest a way out. Specifically, the Committee has to make suggestions on a commonly raised idea that of a fiscal deficit range than a fixed target (like 3% of GDP). Similarly, the committee should suggest changes required in FRBM in the context of rising global uncertainties.

The general perspective of the FRBM Review Committee

Before going into the point-by point presentation of the NK Singh Committee’s suggestions, it is important to look at the overall perspective adopted by it about borrowing run (fiscal deficit) government budget in the Indian context.

The FRBM Review Committee’s philosophy is visible in its report throughout and is that in a country like India, where budgets are framed by accommodating populist pressures, activist or discretionary fiscal policy with high fiscal deficit has limitations.

“The maxim that “you cannot spend your way to prosperity” is now widely accepted. Fiscal policies must therefore be embedded in caution than exuberance. In restraint than profligacy.” The Committee cited evidences that in the recent past, the economy faced troubles whenever the government made high expenditure by shooting over the FRBM targets.

At the same time, when some crisis like the 2007-08 appears, fiscal policy should have some flexibilities. Here, the Committee suggested a carefully crafted escape clause allowing higher fiscal deficit. This escape clause is ‘rule based’ (smart rules) and not ‘discretionary’. Following are the main recommendations of the NK Singh Committee.

1. Public debt to GDP ratio should be considered as a medium-term anchor for fiscal policy in India. The combined debt-to-GDP ratio of the centre and states should be brought down to 60 per cent by 2023 (comprising of 40 per cent for the Centre and 20% for states) as against the existing 49.4 per cent, and 21per cent respectively.

2. Fiscal deficit as the operating target: The Committee advocated fiscal deficit as the operating target to bring down public debt. For fiscal consolidation, the centre should reduce its fiscal deficit from the current 3.5% (2017) to 2.5% by 2023.

Justifying the target of 2.5% to be realized in the next six years, the Committee observed that debt sustainability analysis (DSA) conducted for the central government suggests such a target (for fiscal deficit) will help to achieve the public debt target of 40% for the centre by 2023.

3. Revenue deficit target

The Committee also recommends that the central government should reduce its revenue deficit steadily by 0.25 percentage (of GDP) points each year, to reach 0.8% by 2023, from a projected value of 2.3% in 2017.

The Committee advised government to follow the golden rule here ie., not to finance government’s day to day expenditure through borrowings. Revenue deficit implies financing of government’s day today activities from borrowings.

Table: Fiscal roadmap for 2023 and the targets for the Centre (figures are as a percent of GDP) FD is fiscal deficit and RD is revenue deficit.

Year Debt/GDP FD RD

2017 49.4 3.5 2.3

2023 38.7 2.5 0.80

Source: NK Singh Committee Report

4. Formation of Fiscal Council to advice the government.

The Committee advocated formation of institutions to ensure fiscal prudence in accordance with the FRBM spirit. It recommended setting up an independent Fiscal Council. The Council will provide several advisory functions. It will forecast key macro variables like real and nominal GDP growth, tax buoyancy, commodity prices. Similarly, it will do a monitoring role, besides advising about the use of escape clause and also specify a path of return.

5. Escape Clause to accommodate counter cyclical issues:

The NK Singh Committee points out that there are disadvantages with set fiscal deficit target if some economic instabilities like an external crisis affects the Indian economy. For example, the government has to spend more during the time of a recession and hence it need not restrict its borrowing to keep the fiscal deficit target. Hence, the committee advocates countercyclical covers in fiscal policy while following the FRBM.

Here, the committee recommends fiscal flexibilities to go above or below the fiscal deficit targets in the form of ‘escape clauses’. The Committee set 0.5% as escape clause for fiscal deficit target.

What is escape clause?

The flexibility to adjust with cyclical fluctuations (boom/recession) is incorporated under the “escape clause” (in the case of recession) where temporary and moderate deviations can be made from the baseline fiscal path. This can be permitted under exceptional circumstances and in reaction to external shocks. To ensure that these “escape” clauses are not mis-used, the Committee suggests several specific guidelines. The escape clause can be used only during the time of following essential circumstances:

• Over-riding consideration of national security, acts of war, calamities of national proportion and collapse of agriculture severely affecting farm output and incomes.

• Far-reaching structural reforms in the economy with unanticipated fiscal implications.

• Sharp decline in real output growth of at least 3 percentage points below the average for the previous four quarters.

Deviation from the stipulated fiscal deficit target shall not exceed 0.5 percentage points in a year.

The Escape Clauses can be invoked:

(a) by the Government after formal consultations and advice of the Fiscal Council.

(b) with a clear commitment to return to the original fiscal target in the coming fiscal year.

6. Buoyancy: What the government has to do with fiscal deficit target when higher economic growth occurs?

The Committee also advocates that that the policy responses to sharp changes in output growth should be symmetric (to that of the escape clause). This implies that during higher economic growth, fiscal deficit should be reduced accordingly. (Here, in the case of growth fall, fiscal deficit target can be raised using the escape clause).

7. Fiscal consolidation responsibility for states

The Committee observes that state government’s fiscal position is important after greater resource transfer to them (Fourteenth finance Commission award). Now, total state expenditures (as a percent of GSDP) is now even greater than the Centre. Hence, fiscal consolidation should also be made by the states. They should bring down their debt target to 20% of GDP from the current 21%.

8. Congruence of Fiscal and Monetary Policy

The FRBM Review Commitee observed that both monetary and fiscal policies must ensure growth and macroeconomic stability in a complementary mannger. For this, the Inflation Targeting (IT) regime and Fiscal Rules (FRs) have to interact with each other.

yesJai Hind Jai Bharat

Source: TH

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